C :: How To Define Epsilon In Newton Raphson Square Root Program

I'm working on a c program that generates approximations of square roots based on newton raphson method. I worked out the approximations with another method I learnt and I know this program does fine. But I don't get the concept of epsilon. Below is the code for the program

Code:

#include<stdio.h>
// function to compute absolute value
float absoluteValue(float x)
{
if(x < 0)
x = -x;

[code]....

The text I worked this code from uses the epsilon value arbitrarily. how is the epsilon value selected? I tried using this formula to derive the square root of 45. On paper I can go as far as 6.8 something. But once this value is reached it's still bigger than epsilon, so shouldn't the code keep running? The program generates 1.41 for 2, but since it could go further why does the while loop in squareRoot function terminate?